Reagan Well-rehearsed In Tax Antagonist Role

June 09, 1985|By Bill Neikirk.

WASHINGTON — Ronald Reagan and tax reform go way back. In 1952, his movie career on the skids, Reagan found himself suddenly facing economic problems.

``True, I had been making handsome money ever since World War II, but that handsome money lost a lot of its beauty and substance going through the 91 percent bracket of the income tax,`` Reagan wrote in his autobiography,

``Where`s the Rest of Me?``

``The tragic fact of life in this evil day of progressive taxation is that, once behind, it is well-nigh impossible to earn your way out.``

He told the story of how he, like many veterans of World War II, had deferred his income tax during the war and had expected the government, as it did after World War I, to forgive the tax debt. ``Foolish us,`` said Reagan.

``The day for repayment came and so did a polite fellow in a gray suit. When I opened the front door, almost his very first words were: `Where is it?` ``

The President also has passed on the story of how as a young actor he invited a number of guests to a posh Hollywood restaurant and picked up a $200 check (big money in those days), only to be told by his agent that he would have to earn several times that amount before taxes to pay for his generosity. In those formative years after World War II, when Reagan converted from liberal Democrat to conservative Republican, he already was expressing disdain for the nation`s tax system and what he perceived to be its many distortions. What began as unfocused disrespect for the system has flowered into a presidency of tax cuts and tax overhaul, complete with his clearly stated vision that it will bring a ``Second American Revolution`` with a more productive, dynamic and competitive economy.

The details and the rationale did not all come from Reagan`s mind--he borrowed much of it from others. But it would not have been possible without Reagan`s long-held negative feelings about the tax system, a frustration tied closely to his belief that the government had grown too big, intrusive and impersonal.

In one of the many General Electric-sponsored speeches he made before being elected governor of California, Reagan said that ``we need true tax reform that will at least make a start toward restoring for our children the American dream that wealth is denied to no one, that each individual has the right to fly as high as his strength and ability will take him.``

He quoted an economist as saying that ``if a visitor from Mars looked at our tax policy, he would conclude it had been designed by a communist spy to make free enterprise unworkable.``

At another point in his autobiography, he commented: ``In all the half-million words that make up the senseless hodgepodge of the income tax law, there are only two references to actors. One says we are not entitled to the deductions granted businessmen because we are professionals and the other says we aren`t professionals because we receive a salary instead of a fee.``

Despite his strong views, Reagan`s actual performance on taxes as governor and as President was not always entirely consistent.

Peter Hannaford, a key Reagan adviser in California, said later in public life Reagan often expressed the view that ``taxes should hurt,`` meaning that if people feel the true cost of government, they will be more apt to reduce its size.

But Reagan quickly found how taxes could hurt. When he was elected governor in 1966, he was forced to raise taxes because an accounting change by his predecessor, Gov. Edmund Brown Sr., had masked a deficit. As Hannaford noted in his book on the Reagans, the emerging tax system in the state turned out to be more progressive (hitting the rich hardest) than before.

But later in that first term, Reagan`s finance director, Caspar Weinberger (now secretary of defense), discovered that the state had a modest surplus, and he asked Reagan what to do.

``Give it back to the taxpayers,`` the governor said.

``Give it back? That`s never been done before,`` Weinberger said.

``No, but then you`ve never had an actor for governor before, either,``

Reagan responded.

So rather than reduce actual tax rates, Reagan turned the money back in the form of rebates, credits and lowered bridge tolls. But it was not long before he faced another fiscal crisis, and the proposed solution was a state income tax withholding law. At first, Reagan demurred, saying his feet were in concrete against withholding. When he yielded later, he told reporters, ``The sound you hear is the concrete around my feet cracking.``

These embarrassing political moves for Reagan became the catalyst for California`s Proposition One, the tax-cutting state referendum he launched in 1973. Though it lost, it proved to be the forerunner for the successful Proposition 13, the property tax revolt heard around the country.